Evaluating the Effectiveness of Fiscal Policy in Reducing Income Inequality: Review

Abstract

Fiscal policy is a critical tool for addressing income inequality and promoting social equity. This review evaluates the effectiveness of fiscal measures, including progressive taxation, government spending, and social welfare programs, in reducing income disparities. Key instruments include progressive taxation and targeted subsidies, while investments in public goods like education, healthcare, and infrastructure promote upward mobility and reduce structural inequalities. Income-based tax brackets have proven effective in shifting resources from higher-income to lower-income groups, directly addressing disparities and fostering economic balance. The study uses a mixed-methods approach, integrating empirical data analysis with theoretical frameworks like welfare economics and public finance theories. Challenges such as tax evasion, regressive tax structures, and inefficient resource allocation limit the full impact of fiscal policies. The study emphasizes the importance of effective implementation, political will, and robust institutional frameworks for the success of fiscal measures. Policy recommendations include enhancing tax compliance mechanisms, ensuring transparency in public spending, aligning fiscal policies with social equity goals, and fostering international collaboration to combat tax avoidance.

Keywords:- Fiscal policy, income inequality, progressive taxation, social equity, redistribution.